UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 2005
Commission file number: 000-30651
-----------
INDUSTRIAL MINERALS, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 06-1474412
-------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2500 One Dundas Street West, Toronto, Ontario, Canada M5G 1Z3
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(416) 979-4621
----------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------------- ----------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes X No
-------------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
As of March 31, 2005 the number of shares outstanding of the
registrant's only class of common stock was 111,587,966.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Consolidated Balance Sheets as of March 31, 2005
(unaudited) and December 31, 2004 (audited)..................... 2
Consolidated Statements of Operations (unaudited) for the
Three Months ended March 31, 2005 and 2004 and for the period
November 6, 1996 (Date of Inception) to March 31, 2005.......... 3
Consolidated Statements of Cash Flows (unaudited) for the
Three Months ended March 31, 2005 and 2004 and for the period
November 6, 1996 (Date of Inception) to March 31, 2005.......... 4
Consolidated Statement of Stockholders' Equity (unaudited)
for the period ended March 31, 2005............................. 6
Notes to Consolidated Financial Statements (unaudited).......... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 11
Item 4. Controls and Procedures......................................... 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 13
Item 3. Defaults upon Senior Securities................................. 13
Item 4. Submission of Matters to a Vote of Security Holders............. 13
Item 5. Other Information............................................... 13
Item 6. Exhibits and Reports on Form 8-K................................. 13
Signatures.............................................................. 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
For financial information, please see the financial statements and the
notes thereto, attached hereto and incorporated by this reference.
The financial statements have been adjusted with all adjustments which,
in the opinion of management, are necessary in order to make the financial
statements not misleading.
The financial statements have been prepared by Industrial Minerals,
Inc. without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnotes disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as allowed by such rules
and regulations, and management believes that the disclosures are adequate to
make the information presented not misleading. These financial statements
include all the adjustments which, in the opinion of management, are necessary
for a fair presentation of financial position and results of operations. All
such adjustments are of a normal and recurring nature. These financial
statements should be read in conjunction with the audited financial statements
at December 31, 2004, included in the Company's Form 10-K.
1
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Balance Sheets
March 31, 2005 and December 31, 2004
March 31, December 31,
2005 2004
(Unaudited) (Audited)
------------- ------------
Assets
Current assets:
Cash $ 28,100 $ 27,726
Receivables 11,793 105,925
Prepaid expenses 20,940 15,540
Deposits 53,421 11,789
------------- ------------
Total current assets 114,254 160,980
Long-term deposits 230,000 230,000
Building and equipment, at cost, less accumulated
depreciation of $311,262 in 2005 and $256,167 in 2004 1,800,322 1,778,462
------------- ------------
Total assets $ 2,144,576 $ 2,169,442
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 160,728 $ 120,326
Accrued interest payable 16,382 12,711
Loans payable 370,796 90,796
Due to related parties - 11,787
Current installments of mortgage payable 2,763 2,763
------------- ------------
Total current liabilities 550,669 238,383
Mortgage payable, excluding current installments 11,934 12,632
------------- ------------
Total liabilities 562,603 251,015
------------- ------------
Stockholders' equity:
Common Stock, par value $.0001; 200,000,000 shares authorized;
111,587,966 shares issued and outstanding 3,949 3,949
Additional paid-in capital 4,204,331 4,204,331
Deficit accumulated during exploration stage (2,626,307) (2,289,853)
------------- ------------
Total stockholders' equity 1,581,973 1,918,427
------------- ------------
Total liabilities and stockholders' equity $ 2,144,576 $ 2,169,442
============= ============
See accompanying notes to consolidated financial statements.
2
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Operations (Unaudited)
Three months ended March 31, 2005 and 2004 and
for the period from November 6, 1996 (Date of Inception) to
March 31, 2005
Three months
ended
March 31, November 6, 1996
--------- (inception) to
2005 2004 March 31, 2005
------------- ------------ ------------
Revenue $ - - 15,537
------------- ------------ ------------
Expenses
Cost of revenues - - 76,201
Professional fees 15,335 36,973 1,213,929
Royalty fees 5,400 10,000 58,385
Depreciation and amortization 55,095 22,954 319,971
Impairment of long-lived assets - - 582,176
Management fees and salaries 90,125 30,826 270,652
Other general and administrative 170,503 250,818 2,868,652
------------- ------------ ------------
Total expenses 336,458 351,571 5,389,966
Loss from operations (336,458) (351,571) (5,374,429)
------------- ------------ ------------
Other income:
Interest income 4 40 2,912
Gain from extinguishment of debt - - 1,047,634
Other income - - 594
------------- ------------ ------------
Total other income 4 40 1,051,140
------------- ------------ ------------
Net loss $ (336,454) (351,531) (4,323,289)
============= ============ ============
Net loss per common share $ (.00) (.00)
============= ============
Weighted average common shares outstanding 111,587,966 72,063,896
============= ============
See accompanying notes to consolidated financial statements.
3
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2005 and 2004 and
for the period from November 6, 1996 (Date of Inception) to
March 31, 2005
Three months
ended
March 31, November 6, 1996
--------- (inception) to
2005 2004 March 31, 2005
------------- ------------ ------------
Cash flows from operating activities:
Net loss $ (336,454) (351,531) (4,323,289)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 55,095 22,954 311,679
Provision for bad debts - - 49,676
Stock issued for services - - 414,606
Impairment of long-lived assets - - 297,882
Gain on extinguishment of debt - - (1,047,634)
Changes in:
Receivables 94,132 (12,767) (15,962)
Inventory - - (5,527)
Prepaid expenses (5,400) - (21,480)
Deposits (41,632) 2,778 (53,421)
Accounts payable and accrued expenses 40,402 (95,536) 2,300
Due to related parties (11,787) - 395,000
------------- ------------ ------------
Net cash used in operating
activities (205,644) (434,102) (3,996,170)
------------- ------------ ------------
Cash flows from investing activities:
Purchase of building and equipment (76,955) (151,819) (1,911,161)
Investment in Multiplex - - (75,000)
Acquisition of goodwill - - (149,057)
Loan to related party - - (50,000)
Loan repayments - - 4,493
Long-term deposits - - (159,600)
------------- ------------ ------------
Net cash used in
investing activities (76,955) (151,819) (2,340,325)
------------- ------------ ------------
(Continued)
See accompanying notes to consolidated financial statements.
4
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statements of Cash Flows (Unaudited), Continued
Three months
ended
March 31, November 6, 1996
--------- (inception) to
2005 2004 March 31, 2005
------------- ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock $ - - 744,859
Net proceeds from loans payable 280,000 250,000 5,320,235
Proceeds from mortgage - - 17,000
Principal payments on mortgage (698) (534) (2,303)
Accrued interest payable 3,671 56,088 284,664
Cash acquired in acquisition of Peanut
Butter & Jelly, Inc. - - 140
------------- ------------ ------------
Net cash provided by
financing activities 282,973 305,554 6,364,595
------------- ------------ ------------
Net increase (decrease) in cash 374 (280,367) 28,100
Cash, beginning of period 27,726 585,934 -
------------- ------------ ------------
Cash, end of period $ 28,100 305,567 28,100
============= ============ ============
Supplemental cash flow disclosures:
Cash paid for interest $ - - 113
============= ============ ============
Cash paid for income taxes $ - - -
============= ============ ============
Non-cash investing and financing activities:
Shares issued for debt $ - - 5,564,891
============= ============ ============
Shares issued for services $ - - 414,606
============= ============ ============
Shares issued for investment $ - - 30
============= ============ ============
Shares issued for accrued interest $ - - 268,281
============= ============ ============
Long term deposits financed by accounts payable $ - - 70,400
============= ============ ============
Property costs financed by issuance
of common stock $ - - 30,000
============= ============ ============
Equipment financed by:
Accounts payable - - 200,000
Issuance of common stock - - 5,000
------------- ------------ ------------
$ - - 205,000
============= ============ ============
See accompanying notes to consolidated financial statements.
5
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Consolidated Statement of Stockholders' Equity (Unaudited)
for the period ended March 31, 2005
Deficit
Accumulated
Common Stock Additional During the
--------------------------- Paid-In Exploration
# of Shares Amount Capital Stage Totals
------------- ----------- ------------ ------------ ----------
Inception - November 6, 1996 - $ - - - -
Balance at December 31, 1998 252,500 25 505,143 (750,830) (245,662)
Issuance of stock for cash 30,000 3 146,618 - 146,621
Issuance of stock for services 55,000 6 274,994 - 275,000
Net loss - - - (259,404) (259,404)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 1999 337,500 34 926,755 (1,010,234) (83,445)
Issuance of stock for cash 84,900 8 413,062 - 413,070
Issuance of stock for services 70,000 7 349,993 - 350,000
Issuance of stock for Multiplex
stock 3,000 1 29 - 30
Issuance of stock for acquisition 475,463 47 4,699 - 4,746
Net loss - - - (694,758) (694,758)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2000 970,863 97 1,694,538 (1,704,992) (10,357)
Issuance of stock for
compensation 30,000 3 59,997 - 60,000
Net loss - - - (67,251) (67,251)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2001 1,000,863 100 1,754,535 (1,772,243) (17,608)
Issuance of stock in connection
with acquisition of Industrial
Minerals Incorporated 35,000,000 3,500 (1,740,393) 1,696,982 (39,911)
Minimum 50 shares
post-split allocation 30,758 - - - -
Net loss - - - (520,242) (520,242)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2002 36,031,621 3,600 14,142 (595,503) (577,761)
Minimum 50 shares
post-split allocation 327 - - - -
2-for-1 split 36,031,948 - - - -
Net loss - - - (1,133,197) (1,133,197)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2003 72,063,896 3,600 14,142 (1,728,700) (1,710,958)
3-for-2 split 36,031,948 - - - -
Allocation on round-up
of shares 7 - - - -
Issuance of stock in settlement of debt 3,492,115 349 4,190,189 - 4,190,538
Net loss - - - (561,153) (561,153)
------------- ----------- ------------ ------------ ----------
Balance at December 31, 2004 111,587,966 3,949 4,204,331 (2,289,853) 1,918,427
============= =========== ============ ============ ==========
Net loss - - - (336,454) (336,454)
------------- ----------- ------------ ------------ ----------
Balance at March 31, 2005 111,587,966 $ 3,949 4,204,331 (2,626,307) 1,581,973
============= =========== ============ ============ ==========
See accompanying notes to consolidated financial statements.
6
INDUSTRIAL MINERALS, INC.
AND SUBSIDIARY
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Three month period ended March 31, 2005 and 2004
Organization
- ------------
The Company was incorporated on November 6, 1996, as Winchester Mining
Corporation in the State of Delaware. On May 13, 2000, in connection
with its merger with Hi-Plains Energy Corp. the Company changed its
name from Winchester Mining Corporation to PNW Capital, Inc. On January
31, 2002, the Company acquired 91% of the outstanding shares of
Industrial Minerals, Inc. On May 2, 2002, the Company merged the
remaining 9% of Industrial Minerals, Inc. into PNW Capital, Inc. and
changed its name to Industrial Minerals, Inc.
Presentation of Interim Information
- -----------------------------------
The accompanying interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America and, in the opinion of management, include all normal
adjustments considered necessary to present fairly the financial
position as of March 31, 2005 and the results of operations and cash
flows for the three months ended March 31, 2005 and 2004. Interim
results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q,
and do not contain certain information included in the Company's
audited financial statements and notes for the year ended December 31,
2004.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three-months ending March 31, 2005 and March 31, 2004
During the three-month period ending March 31, 2005 the Company had no
revenues. The Company had no revenue during the same three-month period ending
March 31, 2004.
The Company incurred expenses for professional fees in the amount of
$15,335 during the three-month period ending March 31, 2005 compared to $36,973
during the three-month period ending March 31, 2004. This is a decrease of
$21,638.
The Company incurred royalty expenses in the amount of $5,400 during
the three-month period ending March 31, 2005. The Company is required to pay a
minimum yearly royalty of $21,600 ($27,000 CDN dollars) whether the Company is
producing graphite or not. This is a decrease of $4,600 in royalty expense
during the three-month period ending March 31, 2005 compared to the three-month
period ending March 31, 2004. During the quarter ending September 30, 2004 a
Mine Development and Closure Plan has been filed with, and accepted by, the
Ministry of Northern Development and Mines, in accordance with the Mining Act,
R.S.O. 1990, Ontario Regulation 240/00, including the standards, procedures and
requirements of the Mining Code of Ontario. The Company has allowed for a
prepaid expense in the amount of $8,730 for the three-month period ending March
31, 2005 which the Company now recognizes as an asset because of the acceptance
of the Mine Closure and Development Plan by the Ministry of Northern Development
and Mines. This prepaid asset is further discussed in this report under the
title of Liquidity and Capital Resources.
Depreciation and amortization expense for the three-month period ending
March 31, 2005 totaled $55,095, compared to $22,954 for the three-month period
ending March 31, 2004. This represents an increase of $32,141. This increase is
the result of additional asset purchases involving the Company's Bissett Creek
Graphite property.
Management fees and salaries during the three-month period ending March
31, 2005 totaled $90,125 compared to $30,826 for the same three-month period
ending March 31, 2004. This represents an increase of $59,299. The Company paid
$12,000 in wages to the Chief Financial Officer. The compensation for the CEO is
$10,000 monthly and the Company paid $30,000 in management fees to a Company
controlled by the CEO. The balance of $48,125 was paid to employees of the
Company working at the Bissett Creek property.
Other general and administrative expenses for the three-month period
ending March 31, 2005 totaled $170,503 compared to $250,818 for the same
three-month period ending March 31, 2004. This represents a decrease in the
three-month period ending March 31, 2005 of $80,315 over the same period ending
March 31, 2004.
The Company has begun and is continuing to market graphite that will be
available from the Bissett Creek Graphite Property. Several Companies have
expressed interest in the graphite from the Company's Bissett Creek Graphite
Property. The Company is pleased with this response but cautions investors that
there are no firm orders for the Company's graphite at this time. Investor's
should be further cautioned that the Company might not be successful in its
marketing efforts.
The Company has had a net loss of $336,454 for the three-month period
ending March 31, 2005 as compared to a net loss of $351,531 for the three-month
period ending March 31, 2004. This represents a decrease of $15,077 for the
three-month period ending March 31, 2005 compared to the same three-month period
ending March 31, 2004.
8
Liquidity and Capital Resources
The Company has cash on hand at March 31, 2005 of $28,100 and a
receivable of $11,793 as a result of tax input credits owed to the Company by
the Government of Canada.
The Company has prepaid expenses of $20,940. This represents the unused
portion of an insurance policy that the Company carries for its building and
equipment in the amount of $12,210. This policy expires September 6, 2005. The
balance in the amount of $8,730 represents a prepaid royalty expense.
The Company has total deposits in the amount of $53,421 as of March 31,
2005. The Company has on deposit with its landlord $1,521 which represents
one-month rent and common costs associated with its premises located at 2500 One
Dundas Street West, Suite 2500, Toronto, Ontario, Canada M5G 1Z3. The Company
has entered into a lease, which expires on April 30, 2005 at which time the
Company will continue to rent office space on a month- to-month basis. The
Company also has a deposit on equipment in the amount of $50,000 and an advance
against expenses to two employees in the amount of $1,900.
The Company had no revenue during three-month period ending March 31,
2005 and expects to have insignificant revenue in each of the next two-quarter
ending June 30, 2005 and September 30, 2005. The Company is currently seeking
customers for its graphite. Discussions are on going with potential customers
for graphite but there are no contracts concluded at this time. There can be no
guarantee that the Company will be successful in obtaining a contract for its
graphite.
The Company has total accounts payable of $160,728. The Company does
not have the cash on hand in order to pay these accounts payable in an orderly
fashion. The Company also owes $16,382 in accrued interest payable. A portion of
this accrued interest is due on July 31, 2005 and that portion is $14,279. The
balance in the amount of $2,103 is due and payable on or before December 31,
2005.
The Company has secured a first mortgage in the amount of $17,000
during fiscal year 2002 which requires a payment of $320 (Canadian $400 monthly)
monthly for five years and the balance is then due and payable at the end of
five years. This mortgage carries an interest rate of 7% annually. These
payments were originally $260 monthly however due to the weakness of the United
States dollar in relation to the Canadian dollar a $60 USD per month increase
has occurred. The Company currently does not have the funds on hand to meet
these mortgage obligations.
During the three-month period ending March 31, 2005 the Company has
been able to secure debt financing in the amount of $280,000 from a
non-affiliated shareholder. Total loans payable now amount to $370,796 as of the
period ending March 31, 2005. The interest rate associated with the $280,000 of
borrowing during the quarter ending March 31, 2005 is 10% annually and the
principal along with accrued interest is due and payable on or before December
31, 2005. The interest rate associated with $90,796 of the total loans payable
is 7% annually and the principal in the amount of $90,796 along with any accrued
interest is payable on or before July 31, 2005. As of March 31, 2005 interest
has accrued on this debt in the amount of $16,382. The Company does not have the
funds on hand to pay this debt as it comes due.
9
Industrial Minerals has completed the construction of the crushing and
processing facility located at Bissett Creek. During the first quarter ending
March 31, 2005 work has continued at the Bissett Creek Graphite Mine. As of the
date of this filing commissioning of the mill is at various stages of completion
and an insignificant amount of graphite has been produced. Investors should be
aware that during the commissioning process management has decided to upgrade
certain screens and crushing of the ore as this will enhance production
capabilities as the Company expands graphite production.
In order to complete these upgrades at the mill site the Company has
budgeted for the following cash requirements:
1 Completion of Equipment Installation $ 30,000
2 Upgrading of Screens 110,000
-----------
Total Upgrade Requirement $ 140,000
1 Professional fees $ 52,000
2 Royalty Payments 16,200
3 Management fees and salaries 446,000
4 General & Administrative Expenses 511,509
5 Environmental monitoring and testing 105,500
-----------
Total Operating Budget $1,131,209
Investors should be aware that the above are estimates only and could
change as the project develops.
The Company requires $140,000 to complete the upgrades discussed above
on its Bissett Creek Property. The Company's operational budget for the
nine-month period beginning April 1, 2005 in the amount of $1,131,209 or a
monthly operational cost of $125,689 for each of the months of April 1, 2005
through December 31, 2005. Thus total funds in the amount of $1,271,209 are
required to fund the anticipated operations at the Company's Bissett Creek
Graphite Mine in the amount of $140,000 to complete the upgrades and pay
operational costs of $125,689 monthly for the nine-month period beginning April
1, 2005 and ending December 31, 2005. Subsequent to March 31, 2005 the Company
obtained financing in the amount of $40,000 from a non-affiliated shareholder.
The financing in the amount of $40,000 is accruing interest at the rate of 10%
per annum and the principal in the amount of $40,000 along with accrued interest
is due on December 31, 2005. Since the Company has cash of $28,100 and has a
receivable of $11,793 on hand as of March 31, 2005 and subsequent to March 31,
2005 has received an additional $40,000, the Company requires additional
financing in the amount of $1,191,316. While management believes the Company
will be successful in obtaining satisfactory financing to complete construction
of the mine and begin operations, investors should be cautioned that the Company
currently has no commitments of any type made by any person or entity to provide
financing. Investors and potential investors should be aware that the Company
might not be able to continue to operate throughout it's current fiscal year
ending December 31, 2005 without sales of its graphite or additional financing.
10
Investors and potential investors should be aware that the Company does
not have the funds to complete construction of the mine. In addition, the
Company does not have the necessary funds to operate throughout its fiscal year
ending December 31, 2005. Even if the Company is successful in obtaining the
necessary financing there is no guarantee that the Company will be successful in
marketing graphite. The Company intends to continue to seek debt financing to
ensure its ability to operate throughout 2005 from non-affiliates, and possibly
officers, directors and shareholders. No commitments of any type have been made
by any person or entity to provide financing. Management has no plan to overcome
the uncertainties surrounding the Company's ability to continue as a going
concern for a reasonable period of time extending beyond May 31, 2005 unless the
Company obtains additional financing or begins production and successfully
obtains a contract for it's graphite. Management will deal with issues as they
arise but as a "start up" company in a graphite mining attempt, the Company can
neither predict nor solve, in anticipation, the uncertainties of mining, capital
raising, marketing or operations. All risks and uncertainties inherent in any
start up company exist in the chosen area of the Company. The Company does not
have any other plan in place to provide capital or financing for its operations.
Should the Company complete the mine and begin production investors
should be further cautioned that there might not be a market for the Company's
graphite. The Company is currently seeking customers for its graphite.
Discussions are on going with potential customers for graphite but there are no
contracts concluded at this time. There can be no guarantee that the company
will be successful in obtaining a contract for its graphite.
Investors and potential investors should be further cautioned that the
ultimate success of the Company relies on the Company's ability to successfully
mine and market its graphitic resource at a profit.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any market risk sensitive instruments. Since operations
in Canada are in Canadian dollar denominated accounts, we do believe that we
have foreign currency risk in that as the Canadian dollar increases in value
against the United States dollar our operating costs increase when reported in
United States dollars.
Our product is quoted for sale in United States dollars.
Item 4. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
it is able to collect the information it is required to disclose in the reports
it files with the SEC, and process, summarize, and disclose this information
within the time periods specified in the rules of the SEC. The Company's Chief
Executive and Chief Financial Officers are responsible for establishing and
maintaining these procedures and, as required by the rules of the SEC, evaluate
their effectiveness.
Our Chief Executive Officer and Chief Financial Officer, have evaluated
the effectiveness of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of the end of the period covered by
this report. The evaluation included control areas in which we intend to make,
changes to improve and enhance controls. Based on such evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures were not effective
because of a material weakness as discussed below.
11
Internal Control Over Financial Reporting
The Company maintains a system of internal controls designed to provide
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with management's
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
Material Weakness in Disclosure Controls
A material weakness is a condition in which the design or operation of
one or more of the internal control components does not reduce to a relatively
low level the risk that misstatements caused by error or fraud in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions.
The Securities and Exchange Commission rule making for the
Sarbanes-Oxley Act of 2002 Section 404 requires that a company's internal
controls over financial reporting be based upon a recognized internal control
framework. While the Company has an internal control and procedures manual in
place and management believes the controls and procedures are effective, the
manual is not based upon a recognized internal control framework, because we
have not found one that fits the limited scope of operations of our small
Company. Accordingly, we conclude that we have a material weakness.
During the first half of the Company's fiscal year ending December 31,
2005 management will be revising the Company's internal controls and procedures
document basing this revision upon a model framework created by the Committee of
Sponsoring Organizations of the Treadway Commission (or "COSO") as is
appropriate to our operations. This framework is entitled Internal
Control-Integrated Framework. The COSO Framework, which is the common shortened
title, was published in 1992 and we believe, will satisfy the Securities and
Exchange Commission requirements of Section 404 of the Sarbanes-Oxley Act of
2002.
To address this material weakness management is committed to re-writing
its internal controls and procedures manual based upon the Treadway Commission
report as is appropriate to our operations during the first half of fiscal year
ending December 31, 2005.
Except as noted above, there have not been any changes in our internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during our first fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, nor does
management believe that any such proceedings are contemplated.
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
31.1 Section 302 Certification - CEO
31.2 Section 302 Certification - CFO
32.1 Section 906 Certification - CEO
32.2 Section 906 Certification - CFO
(b) The following is a list of Current Reports on Form 8-K filed by the Company
during and subsequent to the quarter for which this report is filed.
Form 8-K Report filed on January 7, 2005
Form 8-K Report filed on April 28, 2005
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 10, 2005 INDUSTRIAL MINERALS, INC.
By: /s/Larry Van Tol
________________________________________________
Larry Van Tol, Chief Executive Officer,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Dated: May 10, 2005 INDUSTRIAL MINERALS, INC.
By: /s/ John Melnyk
________________________________________________
John Melnyk, Chief Financial Officer,
Secretary/Treasurer and Director
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